The plans to allow tourists to visit the Paracel Islands before the May Day holiday is the latest stage in Beijing's development of the territory, which has previously angered Vietnam and caused concern in Washington.
Vietnam and China have a longstanding territorial row over the Paracel Islands. Hanoi last month accused a Chinese vessel of firing on one of its fishing boats which had sailed in disputed waters in the area.
The plan to allow cruise tours follows rapid development of infrastructure in a new city -- Sansha -- along with the establishment of an army garrison on one of the Paracels last year.
Tourists can only visit the islands on cruise ships as the hotels and other facilities are inadequate, news agency Xinhua said, citing Tan Li, executive vice governor of the southern province of Hainan.
Tan was speaking on Saturday at the Boao Forum for Asia, which is being held in Hainan.
The report quoted shipbuilder Haihang Group Corp Ltd as saying its cruise ship was ready to take almost 2,000 passengers on a tour of the islands. A second cruise ship was being built by Hainan Harbor and Shipping Holdings Co, the report added.
"The tour prices will be relatively high due to the high costs of tourism infrastructure construction," Hainan-based tour agency general manager Huang Huaru told Xinhua.
Tan said local authorities would build more supply ships and ports, and beef up the infrastructure in Sansha.
The city was established last summer to administer more than 200 islets, sandbanks and reefs in the South China Sea, which also include the Spratly Islands and Macclesfield Bank.
All the territory within the two million square kilometres (800,000 square miles) of waters under Sansha's "control" is disputed. The South China Sea is also home to vital shipping lanes and substantial proven and estimated oil and gas deposits.
Located on Yongxing Island, Sansha is home to about 1,000 people, mainly involved in the fishing industry.
Residents of China's newest city rely on ships for fresh water and other materials. The Paracels' only hotel, which has 56 rooms, is also on the island.
Inhabitants have access to a bank and a supermarket, photos on the Internet show. There is a library painted in a salmon-coloured hue and a basketball court shaded by palm trees.
Other pictures depict people relaxing in hammocks outside their modest dwellings.
China has occupied the Paracels, known as Xisha in Chinese, since a brief war with South Vietnam in 1974. It is a cluster of about 40 islets, sandbanks and reefs.
Taiwan, the Philippines, Brunei and Malaysia all have rival claims to parts of the South China Sea, while the United States is also watching Beijing's increased assertiveness.
In his address opening China's parliament last month, former Premier Wen Jiabao said Beijing should "develop the marine economy... and safeguard China's maritime rights and interests".